25 Jan 2016
Comment: Dealing with the financial consequences of redundancy
Allan Gardner, Financial Services Director at Aberdein Considine, examines what you can do to cope with a sudden drop in income should you be made redundant.
The falling oil price has had a devastating effect on those who work in the energy industry.
For thousands of people, what was a healthy, secure income has evaporated. In some cases, this has literally happened overnight.
So what can you do to protect your finances if the worst happens?
Step one: audit
Firstly, do a debt audit. Your credit score while working will usually be much better than if you lose your job, as the loss of income means lenders will be less keen to give you credit.
Therefore if your existing debts aren't at cheap rates, it's best to apply sooner to try to cut their costs.
Step two: pay debts
Secondly, you should look at paying off debts. If you've any spare savings, use them to clear outstanding credit cards or loans. Having debts hanging over you during redundancy is a nightmare. The cost of most debts vastly exceeds the interest earned on savings.
However, it’s important you keep access to emergency funds if you need them. If you decide to repay debts, but it takes longer than planned to find a new job, you may need money later on for day-to-day living.
Step three: speak to your lender
Thirdly, you should look out for mortgage help schemes. If you have a mortgage, work out what level of protection you have if you were to lose your job. Both private, work-based and government schemes may help.
Also check for any mortgage payment protection insurance (MPPI), payment protection insurance (PPI), or short-term income protection (STIP) insurance you may have previously taken out. If you lose your job or are too ill to work, you may be able to make a claim.
In the past, because of the way payment protection policies were sold, you may not realise that you have this cover.
If you already know that you’re at risk of redundancy, it’s probably too late to take out payment protection insurance. Most policies have clauses that will refuse to pay out if you knew you were to be made redundant when you took out the insurance or if you lose your job within the first few months of taking out the policy.
Step four: look at your pension
If you are aged 55 or over, accessing your pension fund could be an option for you. Pension planning can be hard to understand at the best of times. If you are in doubt about what to do, it is important to talk to an independent financial adviser, such as Aberdein Considine, before making any major decisions.
Step five: live within your means
Finally, there's nothing more important than running through all your finances to see what bills you can cut and doing a full budget to ensure you're spending within your means.
To be truly prepared, if losing your job is likely, start living now as if you'd already lost it. Cut back on everything, and put spare cash away to help you live when there's less income.